The government presented the Fiscal Budget 2023-24, with Federal Finance Minister Ishaq Dar announcing it during his speech in the national assembly. The budget included various proposed taxes and duties on cars and the automobile industry.
Removal of Duty and Taxes Cap on Import of Old and Used Vehicles above 1300cc
The finance minister announced the removal of the duty and taxes cap on the import of old and used vehicles above 1300cc. This cap had been imposed in 2005, affecting vehicles of Asian make up to 1800cc. However, the tax cap up to 1300cc will remain intact.
If we refer to FBR S.R.O 577(I)/2005, it states that the import of old and used vehicles of Asian makes is exempted from customs duty, sales tax, and withholding tax. The cumulative amount of exemptions is specified in the following table.
|Automotive vehicles of Asian makes meant for transport of persons
|Duty and taxes in US$ or equivalent amount in Pak rupees
|Up to 800cc
|From 1601-1800cc (excluding jeeps)
Exemption for Import of Old and Used Vehicles of Asian Makes:
Referring to the FBR S.R.O 577(I)/2005, the finance minister stated that the import of old and used vehicles of Asian makes are exempted from customs duty, sales tax, and withholding tax. The specific cumulative amount of exemptions is detailed in the mentioned regulation.
Tax Calculation Based on Ex-factory Price:
The government will now receive duties and taxes based on the ex-factory price of imported vehicles in their original market, such as Japan in this case. Previously, taxes were fixed irrespective of the car’s original market price, resulting in the same tax amount for vehicles like Toyota Aqua, Vitz, and Honda Fit.
Earlier Rumors on Taxes:
There were earlier media reports and rumors regarding expected taxes and duties on cars and the auto sector. Some of the mentioned proposals included:
a. Increase in Tax Rate on Luxury Cars: The government planned to propose an increase in tax rates specifically for luxury cars.
b. Taxation Based on Price Range for Locally Assembled Cars: The government considered implementing a tax system based on the price range for locally assembled cars.
c. Capital Value Tax (CVT) on 1,000 Cars: Market sources claimed that the government intended to introduce a Capital Value Tax (CVT) on 1,000cc cars and above. Initially, a 2% CVT was proposed for cars priced over Rs. 5 million in the last fiscal budget, but it was revised to 1% and applied to 1,300cc and above cars. Additionally, this tax was also applied to electric vehicles (EVs) with batteries over 50Kwh.
The Fiscal Budget 2023-24 proposed significant changes in the taxes and duties on cars and the automobile industry. The removal of the duty and taxes cap on imported vehicles above 1300cc and the exemption for old and used vehicles of Asian makes were key announcements. Moreover, the government aimed to calculate taxes based on the ex-factory price of vehicles in their original market, and there were rumors about increased taxes on luxury cars, price-based taxation for locally assembled cars, and the introduction of a Capital Value Tax (CVT) on 1,000cc cars and above.